Raines: Fannie Won't Encroach on Bank Turf

Its chairman and chief executive officer insisted Fannie can meet stockholder demands for growth without encroaching on banks' mortgage business. Stressing the government-sponsored enterprise's role as a partner, not a competitor, of banks, he announced a plan to work with the American Bankers Association to help banks comply with the Community Reinvestment Act.

"There are those who say that Fannie Mae cannot achieve its financial goals without breaking out of our charter, getting into new lines of business, and competing with you," he said during the ABA's annual convention here. "Some say we want to get into credit cards, insurance, and other consumer services. Some say we want to originate mortgages.

"I'm here to tell you they're wrong."

Mr. Raines said that Fannie Mae is, and intends to remain, a monoline business. "We've put all our eggs in one basket, and it's a good basket," he said. Projected growth in the mortgage market is 6% to 8% per year for the next three years, he said, and the number of homeowners in the U.S. could surge by as much as 10 million in the next decade.

"We net less than 4% of the revenue in the U.S. mortgage business," he said. "But our share is good enough to meet our financial goals and satisfy our shareholders. We don't need to compete with you or your mortgage business."

Despite frequent assurances by Mr. Raines and his predecessor, James Johnson, that Fannie Mae has no interest in originating loans, bankers continue to be suspicious of its low borrowing costs and line of credit with the U.S. Treasury.

Outgoing ABA president Hjalma E. Johnson said that bankers' concern about Fannie's intruding on their territory is natural, given the secondary mortgage giant's need to satisfy stockholders with higher earnings. But Mr. Raines' promises were cold comfort to some of the bankers in attendance.

"I think he believes what he is saying, but of course there is no assurance about what the next director will say," said C. Kendric Fergeson, chairman of National Bank of Commerce in Altus, Okla. "His intentions are right, but I just don't know what the future holds."

During his speech, Mr. Raines announced that Fannie and the ABA had reached a deal to help banks do more CRA lending. Under the arrangement, which is similar to one Fannie has already made with Citigroup Inc. affiliate CitiMortgage, it will purchase CRA-qualifying loans from ABA-member banks.

In addition, banks that are having trouble meeting the CRA's investment requirements can buy customized mortgage-backed securities based on loans Fannie has purchased in the institution's service area.

Finally, banks that want to originate CRA loans themselves, but are having trouble finding borrowers, can obtain a low-cost demographic and economic analysis of their lending area from Fannie's market research group.

The program is also expected to help Fannie meet the Department of Housing and Urban Development's mandate that 50% of the loans it purchases be made to low- and moderate-income families.

"We are very proud of this innovative CRA approach," Mr. Johnson said. "The implementation of CRA is not always easy. Despite their efforts [some] banks are not able to get these loans. Here's a tool they can use."

Even the new initiative won only lukewarm praise from Mr. Fergeson.

"I think they really want to try to service part of the market that needs extra help, and I think it will be good for banks, too," he said. "At the same time, you worry about that being one step closer to doing underwriting and trying to have that direct contact with customer. There is a lot of potential there. We just have to approach it cautiously."

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